Government Saves 90% on Benefit Issuing Costs

Government to Cut Costs With Electronically Payable Benefits

In this technological age, the paper check is starting to look like an ancient relic from an age long past. Most people pay their bills online, make purchases online, or get payments directly deposited into their account. Nowadays, most people use their debit or credit cards to pay for items that were more often paid for with checks.

Now, the paper check has taken another step to becoming obsolete: the Department of Treasury has proposed that all benefits such as Social Security, Supplemental Security Income, and Veterans and Railroad benefits, be switched to electronic forms like direct deposit. The proposal is intended to make all benefits electronically payable by 2011. Not only does this proposal eliminate checks that are lost, fraudulently signed, altered, or stolen, but it will also save about $300 million in the first five years and roughly $125 million with each successive year.

While this program was designed with consumer protection in mind, consumer groups such as the Consumer Federation of America and Consumers Union are speaking out against the proposal. To them, it is the consumer that suffers while the bankers and the payday lenders benefit the most from the proposal.

Consumer groups are primarily concerned that the new proposal could seriously limit recipient’s ability to get their benefits. They are also worried that the limit in choice will push recipients into a direction that will put them at risk for high fees as well as expensive payday loans.

Dick Gregg, a fiscal assistant secretary at the Treasury, says they are working to implement measures that will protect recipients from the potential abuses of payday lenders as well as preventing banks from getting to benefits before recipients have access to them.

Currently, 85% of recipients receive their benefits through direct deposit. That leaves 15% that get paper checks. About 400 million recipients do not have bank accounts so they have to rely on places that cash checks. However, this problem was solved by the creation of Direct Express, a completely voluntary program that allows recipients to sign up for a debit card on which benefits are loaded each month.

This card is used like a traditional debit card and can be used to make purchases or withdraw money from an ATM for free. However, additional withdrawals can be had for a $0.90 fee. They can also get bank statements for a $0.75 fee, transfer funds for a $1.50, or pay bills electronically for $0.50.

However, these are not the only fees that apply: fees such as overdraft protection and loan products, both of which are deducted by the banks before the recipient has any access to the money. To get around this problem, consumer groups have suggested that money that is exempt from the fees of third parties should be placed in the account that is controlled solely by the recipient. However it plays out, transferring business to an electronic format frees more funds for public use.